25 - Canadian Taxation Flashcards
What is the max # of weeks in a corporate fiscal year?
53
Which two provinces collect income taxes rather than the federal gov? (On whom?)
Quebec: individuals & corporations
Alberta: corporations
What are the four steps calculating income tax?
- Calc all sources of income
- Make allowable deductions
- Calc gross/basic tax payable
- Claim tax credits (if any) and calc net tax payable
What are the four types of income and how are they taxed?
- Employment: gross receipt basis
- Cap Property: interest or dividends
- Business: net-income
- Cap Gain/Loss: net gain (half taxed)
When are taxes charged on zero-coupon bonds or index-linked GICs?
Annually, even though no income is received until maturity
How are dividends taxed?
- Grossed up by 45% (taxable amt)
- Taxed at marginal rate
- Dividend tax credit: Subtract 19% (of taxable amt)
How are dividends from foreign corporations taxed?
Taxed as regular income. Use foreign tax credits: lesser of foreign tax payed OR Canadian income tax payable.
What 5 carrying charges are tax deductible?
- Interest paid on funds borrowed to earn investment income
- Fees for investment advice
- Fees for mgmt/admin of invstmts
- Safety deposit box charges
- Accounting fees for recording invstmnt income
What 5 charges cannot be deducted from investment income?
- Interest paid on funds borrowed for cap gains
- Brokerage fees or commissions to buy/sell securities
- Interest paid on funds borrowed to contrib to an RRSP/TFSA/etc
- Admin fees for RRSP or RRIF accts
- Fees paid for financial planning
A taxpayer may deduct interest paid on funds borrowed to buy securities if…?
- Legal oblig to pay interest
- Purpose is to earn income
- Income is not tax exempt
When might be cap gains be treated as ordinary income? (6)
CRA says it’s speculative
- Short periods of ownership
- History of buy/sell or quick turnover
- Spec knowlg of securities mkts
- Substantial time spent investigating the market
- Using lots of margin or debt
- Nature of shares (speculative, non-dividend)
How is the adjusted cost base calculated for identical shares?
Average cost method (add together all costs and divide by # of shares)
How is the adjusted cost base of convertible securities calculated (and when is the cap gain/loss calculated)?
The ACB is based on the original securities (e.g. Buy 1 for $100 and split into 10 common shares, means $10 ACB). Cap gain/loss at time of sale (not at conversion).
What are the three taxation scenarios for Rights & Warrants?
- Direct purchase: same as convertible securities
- From direct share ownership: cost of orig shares must be adjusted. If sold at profit, cost was $0.
- When not exercised: if purchased, cap loss. If not purchased then no gain/loss.
How is accrued interest on a debt security taxed?
The seller: counts it as interest income in the year of sale
The buyer: deducts it from their interest income in the year of sale